There are not many true affirmative defenses to punitive damages, much less ones that can be established on the face of the complaint. One potential basis for dismissing a claim for punitive damages, which could be particularly useful in environmental cases alleging that conduct occurring in the distant past caused injuries that manifested only recently, involves the statute of limitations.
Although only a few courts have addressed the topic, there is a compelling conceptual argument that the statute of limitations for punitive damages should run from the date of the conduct for which punishment is sought, not the date of injury or discovery of injury, as would be the case for the underlying compensatory or remedial claims. The basic idea is that the penal nature of punitive damages makes it appropriate to apply criminal-law limitations principles, under which the statute of limitations normally runs from commission of the wrongful act.
The Supreme Court explained in Cooper Industries v. Leatherman Tool Group that “compensatory damages and punitive damages . . . serve distinct purposes” and that while “[t]he former are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant’s wrongful conduct, . . . [t]he latter, which have been described as ‘quasi-criminal,’ operate as ‘private fines’ intended to punish the defendant and to deter future wrongdoing.” Indeed, as the Court put it more bluntly in State Farm, “[punitive] awards serve the same purposes as criminal penalties.” That being so, statute-of-limitations accrual principles developed for purposes of ensuring injured parties fair access to compensation do not extend to claims for punitive damages, as courts and litigants seem all too often reflexively to have assumed.
Put another way, while it is sensible to allow victims of ancient conduct to recover fully for injuries they do not sustain until many years after the conduct took place (though even then statutes of repose may constrain the ability to bring suit), it is quite another to punish a company for that ancient conduct when the perpetrators may have long since left the company and the burden of the punitive damages will fall on shareholders who cannot in any sense be said to have profited from the misconduct. Allowing plaintiffs to seek punitive damages in these circumstances serves neither of the twin purposes of punitive damages—retribution and deterrence. Moreover, the same policies that govern the implementation of criminal statutes of limitations make sense in the closely parallel context of punitive damages.
Support for this approach may be gleaned from the Supreme Court’s decision in Gabelli v. SEC. In Gabelli, the Court held that the discovery rule, under which the limitations period for fraud is tied to the plaintiff’s discovery of the claim, does not apply to suits seeking civil penalties. One of the Court’s rationales was that “[t]he discovery rule helps to ensure that the injured receive recompense. But this case involves penalties, which go beyond compensation, are intended to punish, and label defendants wrongdoers.” Because penalties are “intended to punish, and label defendants as wrongdoers,” the Court held, “[i]t would be ‘repugnant to the genius of our laws’ if actions for penalties could be ‘brought at any distance of time.’”
As the Seventh Circuit explained in United States v. Midwest Generation, under Gabelli the time to pursue penalties “begins with the violation, not with a public agency’s discovery of the violation.” Midwest Generation involved a lawsuit by the United States and the State of Illinois against a utility that had failed to obtain necessary construction permits under the Clean Air Act. In holding that the case was untimely, the Seventh Circuit reasoned:
Plaintiffs’ contention that a continuing injury … makes this suit timely is unavailing …. Today’s emissions cannot be called unlawful just because of acts that occurred more than five years before the suit began. Once the statute of limitations expired, Commonwealth Edison was entitled to proceed as if it possessed all required construction permits. That’s the point of decisions such as United Air Lines, Inc. v. McMann, 434 U.S. 192 (1977) and Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), which hold that enduring consequences of acts that precede the statute of limitations are not independently wrongful.
Even before Gabelli and Midwest Generation, at least two courts had drawn a distinction between punitive and compensatory damages for statute-of-limitations purposes.
In Fisher v. Space of Pensacola, a landowner sought punitive damages against an adjoining property owner, alleging that the defendant had channeled surface waters onto his property, causing the property to be flooded and littered with debris. In support of his punitive damages claim, the plaintiff pointed to evidence that the defendant had deliberately graded its property so that storm water would flow toward the plaintiff’s land. The Alabama Supreme Court held that, even though the plaintiff continued to suffer injuries as a result of this conduct, the plaintiff could not recover punitive damages because the conduct itself had taken place outside the one-year limitations period, stating:
This may have been enough evidence to reach the jury, had these acts occurred before the expiration of the statute of limitations; however, it is undisputed that there is no evidence of wantonness on the part of Space during the year prior to the filing of Fisher’s complaint. Essentially, Fisher contends that his action for punitive damages continues to run for as long as his property continues to be injured. We disagree. His only damages are for a continuing tort against his land. Recovery in Alabama for a continuing tort is limited to each injury occurring during the statutory period. The wantonness alleged did not occur during the statutory period. Therefore, Fisher cannot recover punitive damages.
Similarly, Johansen v. Combustion Engineering involved acidic water runoff from a long-since-closed mine. The Eleventh Circuit held that, for purposes of punitive damages, “[t]he relevant conduct . . . involves only the four years preceding the filing of the property owners’ complaint in August of 1992.”
In short, even when a plaintiff is seeking compensatory damages for injuries or remediation of conditions that either occurred or continued within the limitations period or that only recently manifested, there is a good argument that punitive damages are time-barred insofar as the conduct that caused the injuries occurred outside the statute of limitations.